Dollar Surges on Economic Data

U.S. 10-year Treasury bonds remained virtually
unchanged today, after prices fell dramatically yesterday on weak demand of
5-year notes. Prices have been falling steadily since the beginning of
December, when a string of positive, turn-around reports were released by the
U.S. government. Bond prices initially shot higher in June, when the Fed
began a cycle of rate-pauses on slowing growth and moderating inflation.
Through the second half of 2006, prices moved higher and yields lower as
continued negative economic reports rolled out of the U.S. Recent economic
reports have pointed to growth and a turn-around in the housing market, which
was one of the major factors contributing to weak sentiments. Today,
prices held steady, as traders took advantage of the 3-month bond price lows.

The dollar rose against the euro, and moved
towards 4-year highs over the yen, after two positive economic reports came out
of the U.S. Durable goods orders and new home sales both rose unexpectedly
in December, quashing doubts of the strength of the recent U.S. rebound.
The dollar struggled through the second half of 2006, but recent reports are all
pointing towards economic growth and rebounding housing numbers. The
international currency market has favored currencies backed by inflationary,
growing economy, which has put the yen at a severe disadvantage against the euro
and dollar lately. Japan has been plagued by negative economic reports,
while Europe continues to show signs of accelerating growth. U.S. dollar
sentiment is starting to pick up steam on a number of positive reports, with the
dollar pushing against highs versus the yen, and pushing off of lows against the
euro. A recent report that the G-7 conference would focus on yen weakness
helped boost the yen for the last two days, but dollar action dominated today’s
currency market.

Crude oil futures rose just over 2% to close at
$55.39 a barrel today, as OPEC gets set to implement more cuts next week, and
cold weather continues to threaten energy supplies. Crude oil fell through
the first weeks of 2007, but has rebounded in the last week, after the U.S.
announced plans to double its reserves over the next decade. Cold weather
is also playing a part in crude’s rebound; cold weather equates to more energy
use and higher energy prices. Natural gas futures rose over 3% today, on
forecasts that cold weather will continue for the next two weeks across the
northern U.S.

Gold fell 0.6% today on dollar strength.
Gold usually moves inversely to the dollar and with oil, but it was dollar
action that dominated today’s gold trading. Investors turn to gold in the
face of dollar weakness and rising oil, and dollar strength today led to selling
in gold in favor of the U.S. currency. Copper prices fell nearly 1% from
2-week highs on a rise in inventories. Investors speculated that reserves
could easily cover demand in the coming weeks.

Grains fell across the board. Corn and
soybeans both fell 0.4% on continued favorable farming conditions in South
America. Wheat fell over 1% in today’s session.

Economic News

U.S. new home sales rose 4.8% in December.

U.S. durable goods orders rose 3.1% in December,
the most in 3 months.

John Lee

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